Will Amazon Buy Palm for Its Patents?

While Palm has been a dud for Hewlett-Packard, speculation grows over whether a mobile device maker could wring some value out of it.

EVELYN M. RUSLI

To protect Fire, will Amazon buy Palm?

Shares of Amazon fell about 2 percent in the first hour of trading on Friday, amid speculation that the online retailer might be angling to buy Palm, the fallen mobile device business that Hewlett-Packard bought last year for $1.2 billion.

According to technology site Venturebeat, which earlier reported on Amazon's interest, the companies are engaged in "serious negotiations," though there are other suitors.

Palm, purchased last April, was supposed to form the foundation of H.P.'s mobile business.

The company, which invented the first personal digital assistant, offered H.P. a line of smartphones and the webOS platform, a mobile operating system that competes with Google's Android and Apple's iOS systems. At the time, Todd Bradley, an executive vice president at H.P., said it would provide the "ideal platform to expand H.P.'s mobility strategy and create a unique H.P. experience spanning multiple mobile connected devices."

But the honeymoon didn't last long.

One year later, the unit was bleeding cash and H.P. was cooling on its personal computing business. As part of a larger overhaul, H.P. announced that it was abruptly shutting down its webOS device business "and exploring strategic alternatives for webOS software." That business, which made up the bulk of H.P.'s "corporate investment" segment made $266 million in revenue in the third quarter, but reported an operating loss of $332 million. H.P. also notified analysts that fourth quarter financials will reflect about $1 billion in charges related to its webOS write-down.

Though the rapid fall of Palm, seems to be yet another red mark on the technology giant's scorecard, H.P. may wring some value out of Palm, if Amazon, or another mobile device maker, makes a bid. After this week's splashy debut of Kindle Fire -- Amazon's highly anticipated touch tablet -- there's little doubt that the online retailer is getting serious about its mobile devices. While the Fire's price point of $199 and its limited features, seems to position it as a non-direct competitor to Apple's popular iPad, analysts say, Amazon may be looking to acquire patents as a defensive maneuver. And Palm, with its trove of patents related to mobile software and devices, could help Amazon stave off future litigation, from competitors like Apple, or Microsoft.

"I don't think anyone believes that Apple and Amazon will not have significant competitive skirmishes in the future," said Jordan Rohan, a Stifel Nicolaus analyst told DealBook on Friday. "The value of I.P. related to mobile has gone up-even if there was no palm devices in the future, it would still be valuable."

Though its unclear just how valuable Palm's trove of patents is, Mr. Bradley of H.P. noted last year, that it "possesses significant I.P. assets."

Intellectual property has been a key driver of several multi-billion dollar deals this year. With many technology giants jockeying for a larger piece of the mobile market, patents have been critical, to ward off litigation, or to push rivals to sign expensive licensing agreements. In July, Apple and Microsoft led a group of technology companies in a $4.5 billion purchase of patents from Nortel Networks. Google, which lost in the bidding, went on a patent spree in the following weeks, buying a trove from I.B.M. and then later, paying $12.5 billion for Motorola Mobility, a holder of more than 17,000 patents.

"There's a war of intergalactic proportions brewing, and instead of an army, they're coming armed with patents," said Mr. Rohan.

Still, from a strategic standpoint, the purchase of a company like Palm would be somewhat of a departure for Amazon, which has not historically been focused on buying companies to build out its consumer technology products. Though its moving towards building better mobile devices, its focus, unlike its competitors, seems to be on selling content, said Scott Tilghman, a Caris & Company analyst. "Amazon is focused on driving consumption of its own media offerings and getting into other forms of mobility, specifically the smartphone space, doesn't seem to be part of their core competency or their core business strategy."

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